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Junk Bonds Taking Off in Europe With Biggest Sale in Two Years

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Junk Bonds Taking Off in Europe With Biggest Sale in Two Years
Ardagh is raising $1.45 billion from a sale of notes in dollars and euros to fund the acquisition of Cie. de Saint-Gobain SA’s U.S. glass bottle unit, the company said today. Photographer: Fabrice Dimier/Bloomberg

Jan. 14 (Bloomberg) -- Ardagh Group, the packaging company buying Cie. de Saint-Gobain SA’s U.S. glass bottle unit, is selling the most high-yield bonds from a European issuer in two years as junk debt risk falls to an 18-month low.

Ardagh is raising $1.45 billion from a sale of notes in dollars and euros to fund the acquisition, the company said today. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings fell for a fifth day to the lowest since July 2011.

Luxembourg-based Ardagh’s offering is the biggest high-yield deal since Wind Telecom SpA sold 1.48 billion euros of bonds in November 2010 and follows a record 77 billion euros ($103 billion) of junk issuance last year, data compiled by Bloomberg show. Ardagh joins miner New World Resources Plc in selling high-yield bonds today as investor demand for riskier securities drives borrowing costs to record lows.

“There is a growing risk appetite with investors,” said Aengus McMahon, an analyst at ING Groep NV in London. Ardagh is a “very well-liked business.”

Yields on junk bonds have sunk to 5.27 percent from 12 percent a year earlier, according to Bank of America Merrill Lynch’s Euro High-Yield Constrained Index. Speculative-grade, or junk, debt is rated below Baa3 by Moody’s Investors Service and BBB- by Fitch Ratings and Standard & Poor’s.

Ardagh, New World

Ardagh plans to issue $750 million of senior, secured notes due 2022, and $700 million of senior bonds due 2020, according to people with knowledge of the transaction. Investor meetings organized by bookrunner Citigroup Inc. will be held in Europe and the U.S. until Jan. 16. Ardagh’s existing 7.375 percent 2017 notes are ranked B+ by S&P.

New World Resources, the biggest producer of coking coal in the Czech Republic, is offering eight-year bonds that will help refinance debt coming due in 2015, said people with knowledge of the deal that asked not to be named because they’re not authorized to speak about it. The Amsterdam-based company’s existing 7.875 percent 2018 bonds are rated Ba3 by Moody’s and BB- at S&P.

Companies are raising at least $4.2 billion of debt today, led by sales from financial institutions including Standard Chartered Plc, which is marketing 25-year bonds in its longest-dated issue in more than 30 years, according to a person with knowledge of the sale. Electricite de France SA, Europe’s biggest power generator, is meeting debt investors in Europe and the U.S. before a sale of perpetual subordinated notes.

PostNL Falls

Bonds of PostNL NV, which holds a 29.8 percent stake in Dutch logistics company TNT Express NV, fell the most in Bank of America Merrill Lynch’s investment-grade index after United Parcel Service Inc. said it plans to call off its bid for TNT. Amsterdam-based PostNL’s 5.375 percent bonds due 2017 dropped 1.6 percent, pushing the yield up 38 basis points to 238 basis points more than benchmark government debt, Bloomberg data show.

In credit derivatives, the Markit iTraxx Crossover index fell as much as six basis points to 415, the lowest since July 2011, data compiled by Bloomberg show.

The Markit iTraxx Europe Index of contracts insuring 125 companies with investment-grade ratings fell one basis point to 101. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased one basis point to 127 and the subordinated index fell one to 209.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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